Pensions watchdogs have warned 14 companies to cut the size of golden goodbyes they are offering savers to leave their retirement schemes.
The Pensions Regulator has written to the companies urging them to rethink their cash offers to savers, claiming the ‘over generous’ payments could jeopardise their funds.
The move comes as record amounts of cash are flowing out of company pensions.
An estimated £21 billion has been paid in the past 12 months to compensate savers for giving up guaranteed retirement payments.
The regulator fears that pension benefits of remaining savers could be at risk if funds are drained of cash as the number of transfers continues to rise.
The average golden goodbye is around £235,000.
Firm warning to pension watchdogs
To claim the cash, savers must give up their rights to guaranteed pension benefits, such as payments linked to the cost of living, spouse death benefits and guaranteed annuity rates.
“In light of the recent events concerning your scheme sponsors, we would expect you to take advice from your scheme actuary about whether the basis on which cash equivalent transfer values are calculated remained appropriate,” the regulator spelled out in the letter.
The letter also points out that the pension trustees should “judge whether a reduction, or further reduction, should be applied to cash equivalent transfer values” depending on the financial strength of the employer backing the scheme.
The letter was published by pension provider Royal London.
Helpful reminder
Steve Webb, the provider’s director of policy explained concerns within the industry over savers transferring out were offered cash lump sums on generous terms at a time when the pension scheme might be in deficit or the employer regarded as vulnerable.
“If large numbers of members transfer out on generous terms there would be a risk that the funding position of the scheme could worsen and the risk of remaining members not getting their full pensions could increase,” said Webb.
“The regulator’s letter is a helpful reminder to all schemes that they need to be fair not only to those transferring out but also those left behind, especially where the scheme in question is in deficit.”
The companies receiving the letter were not named, but most were thought to be among the largest FTSE100 schemes – including supermarket giants Sainsbury and Asda, who announced a merger deal in April.
